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Benefits of using budgets in a
· Manage your finances effectively.
· Improve management control of the business- so the managers know who is
spending what and where they spending the money on.
· Allows the owner or the managers to show their responsibilities- so they know
what they should be achieving towards and managers and staff will be working
towards the same target.
· It can help with decision making- they can make decision in how much goods or
services can be achieved and also time, the cost of the output can be decided as
· Use to motivate- motivating managers and other staff to achieve the objectives of
the business. The budget may also be linked to rewards such as; bonuses, where
targets are met or exceeded.
· Identify problems before they occur - such as the need to raise finance or cash
· Employees can gain satisfaction from given a responsibility to meet a budget and
this may lead to exceed in sales budget.…read more
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Drawbacks of using budgets in a
· Information may not be accurate. Human or electronic error while producing the
· Set at low level- if the budget is to easy to achieve there is no benefit to the business,
this may lead to lower levels of output and higher costs.
· Budgets should be set at realistic levels, which make the best use of the resources
· Set at high level- if the budget is impossible to achieve, it may demotivate the
employees and the managers.
· Errors and inaccuracies will always remain as it is impossible to predict the future.
· Events around the world such as rising energy prices or the global recession may
result in failure of the whole process.
· Employees may see budgets as either a `carrot' or a `stick', as a form of
encouragement to achieve the targets set, or as a form of punishment if targets
are missed.…read more